Liberty Media strengthens international focus

(Telephony) Denver-based holding company Liberty Media has made two investments that should make it the dominant player in the international cable market.

Liberty joined with Klesch & Co. to buy 55% of six of Deutsche Telekom 's cable TV businesses, giving them control of half of Germany's 20 million cable subscribers, in a deal estimated to be worth $2.6 billion. John Malone-controlled Liberty also added $1.4 billion into its stake in UnitedGlobalCom (UGC), the company that controls United Pan-Europe Communications (UPC), Europe's biggest cable network.

"This is very consistent with what Liberty has been doing," said Cynthia Brumfield, president of Washington, D.C.-based Broadband Intelligence. "They are the dominant international player."

Brumfield pointed out that Liberty, which also owns a 25% stake in U.K.-based Telewest, is "a majority investor in quite a few properties overseas."

"Liberty has a fairly aggressive international focus," she pointed out. "They've been making the bulk of their investments in cable properties and related programming properties overseas."

The deal reflects Deutsche Telekom's drive to raise cash and cut debt. Earlier this week the German group said it would sell its stake in Sprint this quarter.

Liberty is expected to blend the UPC programming capabilities with the Deutsche Telekom properties as a way to encourage Germans to pay more for extra cable channels, phone service and interactive online services such as e-mail and shopping. More Germans subscribe to cable television than other Europeans, although at present they receive only 32 channels of programming and the networks are limited in what they can offer.

Brumfield said it was difficult to determine how the investments would affect Liberty's financial outlook, although her general prognosis was favorable.

"It's always hard to say what this is going to do to the value of the company," she said. "I think the folks at Liberty are pretty savvy in terms of tapping into long-range trends, so they're immune to the short-term valuation effects."

The European marketplace has not, as yet, been infected with the economic woes that seem to be slowing telecommunications business in the U.S., thus it is still open to investment in programming and infrastructure and can serve as an interactive applications incubator.

"If you're Liberty Media and you have a nice portfolio of products in your Liberty Digital portfolio, this is an opportunity for you to expand into that market," said Michael Goodman, senior analyst with The Yankee Group.

Goodman also suggested that the deal, while it is Liberty on the surface, might have deeper roots.

"Right now, Liberty Media is a tracking stock of AT&T. Whatever Liberty Media is doing in terms of regulators, it's AT&T doing it," he said.

While Malone has been adamant about freeing Liberty Media from the AT&T grasp, that hasn't yet happened, Goodman added.

"Until Liberty Media is successfully spun off … anything that Liberty Media does is, as far as any regulator is concerned, AT&T doing it. The real point is AT&T just bought a big chunk of the German cable market," he concluded.